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Sunday, Nov 8, 2009
This was an unusually lucid, articulate, and helpful article even for "How the World Works" -- very much in the classic style of the column.
I'd like to add one thing, which is that homeowner mortgages have a peculiar place in the investment world because they're backed by the US government mortgage insurance corporations. The idea was always to encourage the American Dream by reducing the risk that lenders face if a home loan should go bad. In order to discourage lending institutions from going overboard at the government's expense there have traditionally been a host of regulations that limit how "out there" mortgage lenders can go in terms of risk.
But over the past 20 years those regulations have been broken down, at the behest of the lending industry, and between one thing and another the federal insurers have gone from backing loans to repurchasing some of them to acquiring them wholesale. Now the public finds itself holding the paper on mortgages that no lender would have granted if the lender were to remain subject to the actual incurred risk.
And lo, and behold, those high risk home loans are failing. So, yes, we can ask ourselves what to do about regulating Wall Street and so on, but it's not just the private sector. The government -- our government -- did what we wanted and helped turn the mortgage market in particular into the unholy mess that it is today. It accomplished this brick by brick, year by year, and all entirely on the public record. So if you're over 25 and you want to grab the nearest culpable person in frustration and wring their neck, look in the mirror.
And if you're under 25, heh heh, uh... Sorry, kid.
Sure Wall Street has its share of the blame to take, but it is just a piece of the pie.
Apart from greedy fund managers we have:
Greedy mortgage companies clearing bad debt as good secure in the knowledge they could sell it on.
Greedy mortgage brokers desparate to make the sale and collect their commissions knowing there would be no repurcussions.
Greedy real estate agents steering their clients towards dodgy financing.
Greedy buyers who just had to have that Home and Garden house for $600k on their $70k salary, and had to have it NOW.
Greedy homeowners who wanted the TV/car/vacation of their dreams, using their home as a piggy bank.
And lets not forget our greedy government, desparate to pump up a false economy based on rampant consumerism and credit in order to appear fiscally capable. But of course, our government is incapable of living within its means too.
Oh and by the way, it's not just subprime that is hitting the skids. Alt-A and Prime, supposed to be good, is faltering too. Because guess what, even people with good credit get greedy and want more more more, now now now, so they lied about their incomes and stretched to "buy" that trophy home.
It's the culture stupid. And it is getting time to pay the piper while the fat lady sings.
I also am not doing very well at understanding what is going on. But it seems to me that investing is betting. You can win and you can lose. What's the difference? I thought it was a good article and that the analogy with gambling is valid. Also topical with the NBA ref admitting guilt.
Is it true that Fed intervention, with its injections of liquidity, allows big investors to get bailed out? I can't figure it out.
Please define "injections of liquidity" for me. Does it mean that the Fed is buying mortgage-backed securities? If so, doesn't that mean the its intervention has the effect of saving the asses of those who have taken high risks? If your answer is that they can only purchase highly rated mortgage backed securities, doesn't that cause a problem in itself? The problem being that no one can determine the value of mortgage-based securities because the process has been so secretive, mortgages are commingled, and they can't be properly priced; which is the cause of this whole panic driven market? Does the Fed buy pools that are tranched?
I also don't understand the concept of tranches. Like the question posed by another commenter, why group different risked-evaluated securities if they are sold separately? I don't follow.
Where does this bail-out money come from? I'm told it is just created. I don't understand a monetary system where we can send 12.8 billion dollars to Iraq in $100 bills (128 tons of pallets) that haven't been accounted for. There was no accounting system, per Bremmer. Isn't there a price to pay down the road?
I really wonder about the buying (340 point recovery in the last 45 minutes). If I was a buyer, in this market, I would wait until tomorrow to buy because the odds are heavy that the price will be lower. It just seems to me that the Fed knew that the market was going to tank and it started doing its liquidity infusion to prevent the market from collapsing.
Is there a way to figure out what and when and how these injections were done? I am talking about finding out what securities were bought at what time and what the ratings of the securities were? Is there a method as to how the purchases were made so that no one is favored?
OK, Andrew, here's my problem about your write-up: you're setting up this opposition between the "real" economy with "real men" and the speculative, derivative economy of finance capital. This opposition between real and unreal is in essence, uncritically Heideggerian. That is, it ascribes a moral valence/superiority to "real" - real work, real life, real men - vs. the derivative, speculative, unreal world of global finance. As long as you use these binaries to try to critically explain the movement of capital, you are in fact disarmed. That is, you are postulating that somehow, somewhere, there is a "good" and "real" economic (i.e. capitalist) ethos - the hard-working, manly one. And that those hedge fund speculators just fuck it up with their greed and their credit swaps. In short, by creating those binaries - which in and of themselves have a dubious history (hint: it starts with Sorel and Mussolini) - you are misrecognizing and misrepresenting what is in fact a unified social form - capitalism. In that sense, you are reiterating the strategic misunderstanding of the reformist left, who still believes that there is a good form of capitalism. Capitalism has become nature - it is neither good or bad. It is the Hegelian totality, and therefore knows no outside and - as a corollary - cannot be the object of moral judgement. Just like nature, it subjects us to random catastrophic events.
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Salon headlines in your mailbox
